Windstream 2008 Annual Report Download - page 137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
Effective January 1, 2006, the Company prospectively reduced the depreciable rates for its regulated operations in
Pennsylvania to reflect the results of a study completed in January 2006. During April 2006, the Company
completed studies of the depreciable lives of assets held and used in its Alabama and North Carolina operations.
The related depreciable rates were changed effective April 1, 2006. In addition, effective October 1, 2006, the
Company reduced the depreciable rates for its operations in Arkansas and in one of its operating subsidiaries in
Texas to reflect the results of studies for these operations. The depreciable lives were lengthened to reflect the
estimated remaining useful lives of the wireline plant based on the Company’s expected future network utilization
and capital expenditure levels required to provide service to its customers. The effect of these changes in
depreciable lives resulted in a decrease in depreciation expense of $30.1 million and an increase in net income of
$18.6 million during the year ended December 31, 2006.
Change in Segment Presentation – Effective with the completion of the split off of its directory publishing
business, as discussed below, the Company’s publishing operations have ceased and will no longer be a
component of its other operations. Following the acquisition of CTC in the third quarter of 2007, the Company
began presenting wireless services and products within the Company’s other operations. Subsequently, on
November 21, 2008, the Company completed the sale of the wireless business acquired from CTC. As a result of
completing this transaction, we will have no significant continuing involvement in the operations or cash flows of
the wireless business. Accordingly, we have classified these operations as held for sale as of December 31, 2007
and reported the operating results of the wireless business as discontinued operations. In conjunction with the spin
off from Alltel and merger with Valor in 2006, the Company changed the manner in which senior management
assesses the operating performance of, and allocates resources to, its operating segments. As a result, the
Company’s long distance operations were combined with the Company’s wireline segment. In accordance with
the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, all prior
period segment information has been restated to conform to this new financial statement presentation.
Discontinuance of the Application of SFAS No. 71 – Historically, the Company’s incumbent local exchange
carrier (“ILEC”) operations, except for certain operations acquired in Kentucky and in Nebraska, followed the
accounting for regulated enterprises prescribed by SFAS No. 71, “Accounting for the Effects of Certain Types of
Regulation”.
This accounting recognizes the economic effects of rate regulation by recording costs and a return on investment
as such amounts are recovered through rates authorized by regulatory authorities. Changes in the dynamics of
Windstream’s business environment, and accordingly in the mix of its customer and revenue base from
rate-of-return to an alternative form of regulation resulting from increased competition, caused the Company to
reassess its criteria for the continued application of SFAS No. 71.
Based on these material factors impacting its operations, Windstream determined in the third quarter of 2006 that
it was no longer appropriate to continue the application of SFAS No. 71 for reporting its financial results.
Accordingly, Windstream recorded a non-cash extraordinary gain of $99.7 million, net of taxes of $74.5 million,
upon discontinuance of the provisions of SFAS No. 71, as required by the provisions of SFAS No. 101,
“Regulated Enterprises – Accounting for the Discontinuation of the Application of FASB Statement No. 71”. In
addition, the Company began eliminating all affiliated revenues and related expenses. Previously, certain affiliated
revenues earned and expenses incurred by the Company’s regulated subsidiaries were not eliminated because they
were priced in accordance with Federal Communications Commission guidelines and were recovered through the
regulatory process as discussed above. The components of the non-cash extraordinary gain are as follows:
(Millions)
Before Tax
Effects
After Tax
Effects
Write off regulatory cost of removal $ 185.2 $ 112.5
Recognize deferred directory publishing revenue 14.5 9.1
Establish asset retirement obligation (16.7) (10.1)
Write off regulatory assets (8.8) (11.8)
Total $ 174.2 $ 99.7
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